Noose Tightens on Non-Conforming Loans

The following is from a Chase Wholesale Broker Bulletin sent to me by "BZ" a senior loan officer in the mortgage business.

Chase has made a business decision to suspend our Non-Agency Fixed and ARM (Amortizing and Interest-Only) Product offerings within the Wholesale Lending Business.



We have made this decision based on a variety of reasons including the following:

· A dramatic reduction in Jumbo volume levels over the past six months
· A lack of Capital Markets appetite for Jumbo products
· Worse than expected delinquency performance on these loans

If it's not a conforming Fannie Mae/Freddie Mac loan, Chase (JPM) does not want any part of it.

US Bank Places Strict Requirements on Jumbos, and Second Loans

"BZ" also sent me the following notice from US Bank.

"INTEREST ONLY" PAYMENT OPTION:

1. For PURCHASE TRANSACTIONS: The Interest Only payment option will no longer be allowed for U.S. Bank Consumer Finance 1st liens when the LTV/CLTV exceeds 80%

2. For REFINANCE TRANSACTIONS: When the LTV/CLTV is greater than 80% on any U.S. Bank Wholesale ARM the following requirements will apply for the file to be eligible for Interest Only:

A) An escrow account for taxes, homeowners insurance (and flood insurance if applicable), and HOA fees if any will be required

B) A minimum of $250,000 of assets/reserves seasoned for a minimum of 60 days will be required.


WHOLESALE SECOND POSITION LOANS/LINES:

1. The maximum CLTV for any 2nd loan/line is now capped at 80% in the following states:

Maryland, Missouri, Connecticut, Ohio, New Hampshire, Minnesota, Virginia, Delaware, and Colorado.

Those US Bank restrictions on interest only loans are for jumbo loans only, the second note on

Combined Loan To Value Ratio

(CLTV) is across the board.

"BZ" pinged me with the following comments:

"

This is incredible; to get a refi with an arm with interest only payments, you need to have $250,000 in the bank! Mortgage money IS available; but only to those who don’t need it. This is more proof of your peak credit/credit crunch scenario.

"

"

Chase stops doing all jumbo arms AND fixed products with their wholesale lending business. This is what US Bank should have done instead of their ridiculous requirement of $250000 in liquid assets. US Bank is essentially saying that they don't want to do this type of product, but the important point is there are still more restrictions being placed on mortgage lending

".

The CLTV US Bank restriction will eliminate the use of second loans to avoid PMI and caps home equity lines to 80% of the value of the property. I expect appraisals to be tight.

Other lenders will follow Chase and US Bank which means the cost of getting a jumbo loan, or any other type of non-conforming loan (if indeed you can get one at all), is going to soar. In addition, those wanting to raise cash via a second mortgage are going to find it much more difficult (or expensive), to do so.

The noose continues to tighten around the consumer and the homebuilder.

Comments

[Ishortyou:]

Greedy crooks in Banks and Broker firms wrapped subprime, credit cards, bad loans, etc. into structured finance vehicles i.e.: CDO-ABS-MBS-SIVs, they misled the market and bond insurers into these fraud and now everyone is paying the price with losses now the misleds have to clear up their books from that toxic waste!

2008 Aug 04 09:46 AM

[ArnoldCountry:]

No big surprise here except that it took them this long to do it. The wholesale market is slowly going away and mortgage brokers are on tract to be extinct if they are not careful. Its all about delivering lousy loans with high defaults and shoddy paperwork. They need good loans for the few loans they are doing and mortgage brokers are not delivering good loans. This statement is not based on the majority but based on the fact that wholesale business has a higher percentage of first payment defaults and delinquencies than their retail counterparts. Its a fact that mortgage brokers own.

2008 Aug 04 10:12 AM

[oddsneds:]

On the other hand,in early July I applied to a small regional NJ bank, where I did not have any deposits or history, for a full doc $502,000 refi of my 2004 WaMu NIV 5/1 option arm whose initial reset was coming due in early 2009. This is about 70% LTV at today's appraisal, and I have a $200K IRA and some other assets, and run a business so I am considered self employed. It was approved in 3 days at the requested 5.625% as a 7/1 arm with 0 points. They say they will hold the loan in their portfolio.

Even putting aside the fast approval, this rate was 1 full point below what WaMu offered. WaMu has my 100% perfect payment history. I wouldn't have bothered with any major brand name bank because their need to rebuild capital is going to force restrictive top-down decisions like those discussed in this article. Bottom line: if you are qualified by reasonably conservative standards you will not have any trouble getting funding from a healthy regional or local bank. If you are looking for free and easy money those days are gone...for now.

2008 Aug 04 10:26 AM

[Smalltownba...:]

Chase has not stopped Jumbo lending. They have stopped buying the loans from Brokers. This way they can better control the quality of the loans. Jumbo lending has almost always had high liquidity requirements. That should be no surprise. God knows I would not want to borrow $1 million dollars if I did not have $250k minimum liquid assets. It would be a foolish action like what has led to the problems we face today. High end homes are subject to greater fluctuations in market value than low end homes therefore the action is justified.

I am glad that these lenders are making the tough decisions to restrict lending. The problem is that it is too little too late.

2008 Aug 05 08:43 AM